This is a common question asked by agents, brokers and insurers when calling the WCIRB. What they really want to know is whether or not two entities can be insured on the same policy, or if the payroll and loss experience for two entities should be combined for experience rating. The answer is, it depends.
A workers’ compensation policy typically insures a single entity (individual, partnership, corporation, etc.). More than one entity may be insured on a policy, but only when the entities share majority common ownership. Separate policies are required for entities that do not share majority common ownership.
When entities share majority common ownership, the California Workers’ Compensation Experience Rating Plan–1995 (ERP) requires that they be combined for experience rating purposes. Entities with majority common ownership can either be insured on the same or separate policies, but their payroll and loss experience must be combined by the WCIRB. If they qualify for experience rating, the experience modification will reflect the experience of all of the entities.
Here are some common questions regarding the Combination of Entities rule in the ERP:
Steps for Determining When Entities Must be Combined for Experience Rating:
The ERP defines an entity as the legal nature of the business that is being insured: an individual, joint venture, partnership, limited liability partnership, corporation, limited liability company (LLC), unincorporated association, trust, receivership, or estate. A “dba” which is short for “doing business as," is not a legal entity.
Entities share majority common ownership when the same person or persons own a majority interest (>50%) in each entity.
Multiple entities can be insured on the same policy, but only if all the entities share majority common ownership.
If a person owns 100% of an entity, and his/her spouse owns 100% of another company, these entities are not combinable. If the spouses each share ownership in their respective companies, the entities would be combined if collectively there is majority common ownership in both companies.
A corporation may be combined with an LLC as long as they share majority common ownership. For experience rating purposes, the ownership of an LLC is determined as though each member owns an equal share (see Section II, Rule 9c. of the ERP). For example, an LLC with three members would be combinable with a corporation if two of the LLC members are majority shareholders in the corporation.
For experience rating purposes, the ownership of a joint venture is determined as though each joint venturer owns an equal share. For a joint venture to be combined with another joint venture, or any other entity, there must be a collective majority common ownership in all of the entities involved. A joint venture cannot be combined with an entity owned by its joint venturers unless the joint venture and the entity are themselves combinable.
In most cases, a trust cannot be combined with other entities for experience rating purposes. However, if a trust is set up by parents for the benefit of their minor children, and the parents are the only trustees, then the trust is combinable with the parents’ other operations. Or if two or more trusts share identical trustees and beneficiaries, they are combinable with one another. Refer to Section IV, Rule 2 of the ERP for more information.
If you have questions about the Combination of Entities rule in the ERP, you can always contact us for assistance. To notify the WCIRB that you believe entities should be combined or separated for experience rating purposes, the insurers can log into WCIRB Connect® and use the Ownership Information Submission tool to notify the WCIRB of a change in ownership. Those who submit ownership information to the WCIRB on behalf of their organization and do not have WCIRB Connect user accounts can go to the WCIRB Connect page to find out how to obtain a WCIRB Connect user account.
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